Jonathan Clements's Blog, page 365

April’s Hits

IT’S BEEN A BUSY month at HumbleDollar. In April, we added a new article every day, while also increasing the frequency of our newsletter from twice a month to weekly. It was the site’s second best month ever for page views���but we couldn’t quite rival March’s lofty level. What were folks reading? Here are April’s seven most popular articles:

Oracle of Boston
Five Crashes
Before You Leave
Unloaded
Get the Point
Not So Easy
Pass It On

In addition, April saw a hefty amount of traffic for two articles from March:��45 Steps to Success and Higher Taxes?��As HumbleDollar has expanded, our costs have also increased. Want to support our work? Please consider donating.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook . ��His most recent articles include Cover Me, Singled Out and��On the Other Hand. Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar participates in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and then purchase books or other merchandise, you don’t pay anything extra, but we make a little money. HumbleDollar has no other affiliate marketing relationships.

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Buen Camino

ON APRIL 3, my husband Jim and I were among 262 pilgrims who made our way into Santiago de Compostela to receive an official pilgrim���s certificate for completing the required distance along one of the famous El Camino���s several routes���the most popular of which is some 500 miles. We were now certified peregrinos, or pilgrims.

Because it was early in the season, ours was one of the slow days for Camino completion. Last��August, 2,000 certificates per day were issued. Walking El Camino is gaining in��popularity not just with Spaniards, but also with folks from around the world. In��2018, there were 327,328 certificates issued, compared to just 2,491 in 1986.

This begs the question: Why do people commit themselves to such an arduous walk, which can take weeks to complete? In an age that provides convenience, comfort, speed and efficiency, thousands from around the globe walk hundreds of miles, enduring considerable physical demands, long periods of solitude, and deprivation from most modern comforts and conveniences.

I can���t answer that question for all pilgrims. But I can honestly say that it was one of the most memorable experiences of my life. The certificate at the end was, of course, nice to receive, but that was the least of it. In The Pilgrimage, Paulo Coelho wrote, ���It is the road that teaches us the best way to get there, and the road enriches us as we walk its length.��� El Camino enriched me in three ways:

I had the feeling of being fully present. I recently retired after working more than 25 years in the business world, where I had to be simultaneously mindful of the past, the current situation and the future. The simple act of walking, putting one foot in front of the other for mile after mile, hour after hour, brought me a new sense of time. On El Camino, I was forced to live in the present. I gave no thought to what happened yesterday nor what might happen tomorrow. All that mattered was the present, and that heightened my senses and made me feel more alive.
I gained a sense of gratitude. As the famous (or infamous?) Jonathan Clements said, ���When you discover you have more money than time, you should stop pursuing money and focus on getting the most out of your time.��� Walking El Camino was one of my life���s great uses of time. As I walked, I reflected on how fortunate I am to be healthy in body and mind. I followed Jonathan���s advice and dropped out of the rat race. Now, I have the rare freedom to choose how I spend my time.
I felt a sense of community and connection.�����Buen Camino��� was the most common phrase we heard from fellow pilgrims and locals. In this instance, it meant ���have a good path������wishing one well on the long journey ahead. This gave us a feeling of constant connection with others.

���You will never walk alone��� was one of the many bits of graffiti I read along the way. It provided me with much needed reassurance. Coming from the business world, especially the competitive and fast-paced environment of finance, it was striking that no one gained here at the expense of someone else���s loss. In business, achieving success at all costs can bring out the worst in people. Getting ahead often means crushing others. But you won���t find that on El Camino. Everyone is walking at their own pace for their own personal reasons, while supporting each other on their journey.

Jiab Wasserman recently left from her job as a financial analyst at a large bank at age 53. She’s now semi-retired. Her previous articles include Takes Skill,��Living Small��and��This Old House.��Jiab and her husband, who also writes for HumbleDollar, currently live in Granada, Spain. They blog about downshifting, personal finance and other aspects of retirement���as well as about their experience relocating to another country���at��YourThirdLife.com.

HumbleDollar participates in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and then purchase books or other merchandise, you don’t pay anything extra, but we make a little money. HumbleDollar has no other affiliate marketing relationships.

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Cash Is King

MOST AMERICAN families are living paycheck to paycheck. This was highlighted by the recent government shutdown. Many federal workers quickly found themselves in financial trouble, when they didn���t receive their regular pay. In fact, a Federal Reserve survey found that four out of 10 Americans either couldn���t cover a $400 emergency or, to do so, would need to borrow or sell something.

That brings us to a question I���m often asked: Why do financial advisors insist clients establish an emergency fund? After all, that cash will likely sit in a low-interest checking or savings account, where it lags behind inflation. You might be wondering whether the money could be put to better use by, say, paying down debt or investing through a brokerage account.

My response: No matter how good your financial plan, the steady progress you���ve made over the years could come to a screeching halt if times turn bad. A financial emergency is just that���an emergency. Often, the bills are high and need to be paid promptly. If you put off payments, you could wreck your credit score, get hit with financial penalties and you might be charged hefty amounts of interest. This can leave you in a financial hole that���s difficult to escape.

A 2017��study��from the Federal Reserve Bank of St. Louis illustrated just how important it is to have a cash buffer. The study found that having more liquid assets and fewer debts reduces the chances of financial hardship. That makes sense. Most interesting to me: Having cash on hand was the greatest predictor of success.

The report���s authors, Emily Gallagher and Jorge Sabat, put it this way:�����Our findings suggest that households should be encouraged to maintain at least a small buffer of liquid savings, even if the cash in that buffer is not being used to pay down high-interest debt.���

Having an emergency fund was found to reduce the chances that folks fail to pay their rent and mortgage, miss payments on everyday bills, skip medical care or go without needed food. The bottom line: You should establish a cash buffer before taking on other financial goals.

The fact is, some of life���s most critical expenses can���t be put on a credit card. The rent, mortgage and many utility bills must be paid on time and from your checking account. Living without a small cash buffer puts these necessary payments at risk, should you find yourself without an income.

Need to boost your cash buffer? In today���s gig economy, the opportunities to earn extra cash are almost endless. Look for ways to use your free time to make money. That might mean driving for a ride-sharing company, renting out a spare bedroom or selling unused clothes on eBay.

If you don���t currently have a cash buffer, your initial target should be $1,000 in a separate savings account. This amount will likely cover your insurance deductible, if you need to make a claim. After you reach $1,000, turn your focus to paying down high-interest debt.

Once that high-interest debt is paid off, aim to establish what I consider a full emergency fund. This amount varies, depending on your personal circumstances, but generally you���ll want to sock away between three and six months of living expenses. Entrepreneurs and those with little job security should consider a larger emergency fund, perhaps equal to one or two years of expenses. Retirees will also want to hold a few years of spending money in a cash reserve, so their lifestyle won���t be threatened by hefty medical expenses or a financial market downturn. Sound excessive? Remember, at times of trouble, that cash buffer may be your most prized asset.

Ross Menke is a certified financial planner and the founder of Lyndale Financial , a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross���s previous blogs include More to Come,��Pass It On,��A��Great Gift��and�� Bad Timing . Follow Ross on Twitter @RossVMenke .

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Out of Bounds

ON DEC. 7, 2005, a curious thing happened in a Harvard classroom. Prof. Michael D. Smith stood in front of a group of computer science students to introduce a guest speaker: entrepreneur and former Harvard student Mark Zuckerberg. What was curious was that the room was nearly empty. The class met in a huge lecture hall, but there were barely a dozen people in the room.

How could that be? Why was there so little interest in Zuckerberg’s presentation? Some explanations come to mind. First of all, Facebook was still relatively young at the time���not even two years old���and Zuckerberg himself was just 21. Even the professor wasn’t sure how to describe Facebook, calling it a ���social networking program, or whatever you want to call it.���

But I don’t think that fully explains the nearly empty room. Yes, Facebook was still relatively new, but even then its influence was growing quickly. It already had 6 million users across 2,000 college campuses, and it had more traffic than Google���60% more���so Facebook was hardly unknown.

The explanation, I believe, is a phenomenon known as ���bounded rationality.��� In short, what this means is that people don’t always make rational decisions���not because they don’t want to, but because they have a limited ability to do so. There is no shortage of information around us. What is in short supply, though, is the time required to process all the information that bombards us each day.

That���s why, I believe, so many presumably smart and motivated computer science students passed up an opportunity to attend an hour-long question-and-answer session with someone who was well on his way to becoming a leader in their field. It’s not that they didn’t know who Zuckerberg was. It’s that they didn’t realize who he was going to be, and why it might be worthwhile to attend.

Bounded rationality also impacts our ability to make good financial decisions.��Research��has shown��that often we get interested in things just because they happen to cross our radar. At the same time, we tend to discount or ignore things that don’t grab our attention, whether they���re important or not.

How can you protect yourself from this phenomenon? Here are four ideas:

1. Each time you���re considering a big financial decision, ask why you want to make that particular decision.��Was the idea the result of something you just happened to hear about���or was it the result of a methodical search?

2. Recognize the implications of bounded rationality for ���hot��� investments, be it Tesla stock, Fidelity Contrafund or cryptocurrencies.��The stocks of fast-growing companies may get all the attention, but the data clearly show you’re better off with the stocks of more mature, slower-growing companies. So-called value stocks have outperformed growth stocks by a wide margin, on average, over time.

3. If you have an investment idea, and it’s not something anyone has ever heard of, don’t discount it.��There’s an old joke about two economists walking down the street. Suddenly, one of them spots a $100 bill and begins to pick it up.

���Don’t bother,��� his colleague says. ���If there were really a $100 bill, someone would have already picked it up.���

The joke, of course, is that sometimes there really are opportunities that you spot before others do. It may be infrequent, but it does happen. I generally recommend against picking individual stocks, but that doesn’t mean it can never work. You shouldn’t be dissuaded just because it isn’t a company that everyone’s talking about. Just be sure to keep your bets to a reasonable size.

4. When considering financial risk, look beyond the recent past and the ���consensus��� view among Wall Street pundits.��In November 2008, in the depths of the financial crisis, Queen Elizabeth II convened a group of economists and asked a simple question: Why didn’t anyone see this coming?

One brave soul answered, ���At every stage, someone was relying on somebody else and everyone thought they were doing the right thing.���

In other words, no one was worried about a recession, because no else was worried about a recession. If that sounds circular, it is. That’s why bounded rationality is so tricky. The lesson: As you structure your finances, try to go beyond the groupthink. Just because something has never happened before, or hasn’t happened recently, or no one’s talking about it, doesn’t mean it can’t happen.��

Adam M. Grossman���s previous articles��include Not So Easy,��Many Happy Returns��and��Oracle of Boston . Adam is the founder of�� Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He���s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter�� @AdamMGrossman .

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Cover Me

IF YOU ASK an insurance agent how much coverage you should have, the answer invariably is ���more.��� What if you show too much interest? Next thing you know, you could find yourself the unhappy owner of a high-cost variable annuity.

Consumers, meanwhile, take what might be politely described as a barbell approach. Sometimes, they���re acutely aware of a particular risk and buy more coverage than they need���a frequent occurrence with auto and health insurance. But in other instances, they simply ignore the risk. This leads folks to skip life, umbrella liability, disability and long-term-care insurance.

Want to make more rational decisions? Keep in mind these 11 rules of insurance:

1. When we buy insurance, we���re pooling risk. If we have a claim, the check may come from the insurance company. But in reality, the money���s coming from other insurance buyers. We toss our premium dollars into a risk pool, from which claimants are then paid.

2. We should hope never to collect. If we don���t ever have a claim���and hence we���re paying premiums and not getting anything back���that���s a sign that life is good. No car crashes. No house fires. No untimely deaths.

3. There���s a key exception to rule No. 2: If we buy an immediate-fixed annuity that pays lifetime income, we want to get money back���and lots of it���because that means we���re enjoying a long life.

An aside: While most annuities are horrible products, I���m a fan of immediate-fixed annuities that pay lifetime income. It���s the same reason I favor delaying Social Security to get a larger monthly check. Both strategies allow you to hedge longevity risk���the danger that you���ll outlive your savings.

What if you���re going to use just one strategy? I���d delay Social Security. Why? Immediate-fixed annuities suffer from so-called adverse selection. While Social Security serves the broad population, insurers know healthier folks tend to buy lifetime income annuities, so they price them accordingly���and the payoff isn���t as attractive as the payoff from delaying Social Security.

4. We should fret less about getting the right-size policy���and focus more on purchasing at least some coverage. It can be hard to know precisely how big a policy to get, especially with umbrella liability and life insurance. But don���t let that deter you from getting at least some coverage, assuming you need it.

Why? If you get slapped with a lawsuit, carrying some umbrella coverage should ensure the insurance company gets involved, fighting on your behalf. If you go under the next bus, owning some life insurance will give your family at least a modicum of financial breathing room, as they recover from the tragedy.

5. Our chances of dying are 100%���so the insurance component of permanent life insurance, which is intended to be held until death, will invariably be costlier than that of term insurance, which provides coverage for maybe 20 or 30 years.

Permanent ���cash value��� life insurance also involves high costs, plus you���re required to pay into an investment account, which is how you build up that cash value. In fact, the premiums on permanent insurance are so high that many people let their policies lapse. That means these folks fattened the wallets of the insurance companies and their agents, while getting scant benefit themselves.

6. Never buy investments from an insurance company. This includes not just cash-value life insurance, buy also variable annuities and equity-indexed annuities. Agents hawk this garbage because it pays them fat commissions. What about sensible, low-cost investments, like index mutual funds and exchanged-traded index funds? Even if insurance agents are licensed to sell these sorts of securities, they probably won���t recommend them, because there���s little or no commission to be earned.

7. Insurance companies usually pay out less in claims than they receive in premiums, so insurance buyers collectively lose money. That doesn���t mean insurance is a bum deal���provided that, in return for our premium dollars, we���re getting protection against major financial risks.

But what if we���re talking about minor financial risks, such as the windscreen cracking on our car or the new television going kaput? Because insurance will usually be a money loser, we don���t want to pay premiums to protect against risks we could easily cover out of pocket. Result: We should usually skip extended warranties���which are a type of insurance���while also opting for insurance policies with higher deductibles and longer elimination periods. The latter kicks in with disability and long-term-care insurance. It���s the time between when we make a claim and when benefits begin.

8. Two exceptions to rule No. 7: extended warranties on electronics bought for children and trip-cancellation insurance if you���re elderly. Both extended warranties and trip-cancellation insurance are classic examples of bad insurance: We���re charged relatively large premiums to protect against relatively modest financial risks. But given the frequency with which kids destroy iPads���and senior citizens need to cancel trips for medical reasons���these policies may make sense in these two special cases.

9. It���s important to favor insurers with a top rating for financial strength. That���s especially true if you���re dealing with a life-insurance company���those that insure humans���rather than property-casualty insurers, which write coverage for houses, cars and other property.

Indeed, while you might shop for the lowest premium for auto and homeowner���s insurance, that isn���t necessarily a good strategy for policies you plan to hold for the long haul, like life and long-term-care insurance. Why not? A very low premium may mean that the insurer has misjudged the risk involved and you could face large premium increases down the road���something that���s happened frequently with��long-term-care insurance.

Even more worrisome: The low premium could indicate the insurer is in shaky financial shape, and it���s struggling to attract new business or it���s hoping to compensate for low premiums by aggressively investing premium dollars. Either way, there���s a risk the insurance company won���t be there when you need it.

10. Carrying insurance creates a so-called moral hazard���meaning it changes our behavior. Those with health insurance are more inclined to see the doctor and may be more inclined to take physical risks. Those with long-term-care insurance are more likely to go into a nursing home���one of the problems insurance companies failed to anticipate and which is why many are now requesting obscene premium increases. Feel like insurance is overpriced? You can blame that, in part, on moral hazard.

11. Our insurance needs change over time, so we should review our coverage every few years. If we get married or have children, we might need more life insurance. But as our savings grow, we can take the risk of higher deductibles and longer elimination periods���and we may be able to drop some insurance policies entirely.

Indeed, if we have enough set aside that our family would be okay financially if we died tomorrow, we might let our life insurance lapse. Similarly, if we have a big enough nest egg to pay nursing home costs out of pocket, we might skip long-term-care insurance.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook . ��His most recent articles include Singled Out,��On the Other Hand��and��Five Crashes. Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money. Check out his new podcast with Creative Planning’s Peter Mallouk.

HumbleDollar participates in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and then purchase books or other merchandise, you don’t pay anything extra, but we make a little money. HumbleDollar has no other affiliate marketing relationships.

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Why, Why, Why

SIMON SINEK broke onto the scene in 2009, asking us to ���start with why.��� His TED Talk has been viewed millions of times and inspired countless articles. He commands attention and captivates audiences with his message. All good things. For both individuals and organizations, there���s immense value in asking, ���What���s my why?���

But what about ���who���? In all the enthusiasm over ���why,��� I don���t think ���who��� has gotten its due.

When I talk about ���who,��� I���m talking about your community and your sense of connection to others in that community. I believe those two closely related things are crucial in helping change people���s financial behavior for the better.

I was raised by a single mother on a teacher���s salary. Money was always tight. Paying bills was a monthly event that brought stress and anxiety to my Mom, as well as to my brother and me. While I never felt ashamed, the topic of money was never a positive one. Indeed, until I started a career in finance, I never liked talking about it. A strong and supportive professional community, as well as a supportive wife and family, have given me the connection and community I need to develop good money habits.

Evidence of connection and community���s effectiveness is all around us. Think about Weight Watchers and CrossFit. They���re extremely effective at helping bring about positive change. It���s the ���who��� that makes the difference. Many of us already possess all the knowledge we���ll ever need concerning proper nutrition and fitness���and, if we don���t, the information is one internet search away. But it���s the addition of connection, via a supportive community, that makes Weight Watchers and CrossFit so effective.

What does this have to do with personal finance?

Dave Ramsey has created a community. He has folks on his show do their ���debt-free scream.��� Not only are they not embarrassed about having been in debt, but also they can���t wait for their opportunity to broadcast it to the world.

Money problems can be embarrassing, shameful and isolating. That, in turn, can lead to inaction, often helping to perpetuate these problems across generations.

The opposite of that scenario: an open and honest dialogue about financial shortcomings and struggles. It���s about being part of a community with others who have been where you are, overcome the problems you���re experiencing, and are interested in helping you get where you want to go. That���s the ���who��� I���m talking about. It���s that safe environment where people share, listen and are willing to help make real and lasting change happen.

This environment can be created at work, church, in your neighborhood and at home. A first step could be something as simple as a book or investment club. It can be something little like breaking down the costs of the family trip to Disney, so your kids begin to grasp the important concepts of budgeting and saving.

Like most everything else, this won���t happen on its own and it won���t be easy. But it���s well worth the effort. You���ve got your ���why.��� Now, find your ���who.���

George Grombacher is the Chief Community Officer of Money Alignment Academy, as well as the host of the Money Savage��podcast.��He works to help people lead happier and more contented lives, with a special focus on money. George’s previous articles for HumbleDollar were Castles in the Air, Taking Advantage and��What I Value. Follow him on Twitter @GLGrombacher.

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One Last Thing

ONLY ABOUT 40% of Americans have a will, including just 58% of those ages 53 to 71. The good news is, among those of us 72 and above, the percentage is much higher���81%.

Putting in place a will, trust documents, powers of attorney and so on is no easy task. I���ve been through the process twice and it���s not fun, mostly because a good attorney will ask a lot of uncomfortable questions you���d probably rather not think about���like, do you want to designate someone to pull the plug, or which of your children should be executor, or should you pick someone else entirely?

And then there���s the lawyer���s prodding to be very specific about who gets what, when and how���because you don���t want your children fighting about it. I have a beach house that I hope will stay in the family. But what if one of my kids wants no part of it? What if one child wants his or her share in cash right away or perhaps two years after I���m gone? What if they can���t afford to maintain the place? It took some serious discussions with my attorney to figure it all out.

Even after you���ve dealt with all the formal legal documents, there���s still the nitty-gritty practical stuff���which you might include in a letter offering final instructions (and, yes, I do mean final). It���s a document all members of your family should know exists, as well as where to find it. They might even review it ahead of time, so there���s no confusion. Many of these steps should be handled by the executor���and may require a death certificate. Here are 15 items in my final instructions:

A list of the credit cards that need to be cancelled���but before you do so, here are all the businesses that automatically charge each card each month.
Details of my bank accounts and the businesses that auto-deduct from each account each month.
Where my investments are held. In my letter, I���ve attached screenshots of each account with all the contact information.
The beneficiaries on my 401(k) plan, plus who to contact to make the claim.
Before you touch the IRAs or 401(k) plan, contact a tax advisor about the best way to minimize taxes.
My investments are designed to provide additional regular income to Mom. Before you go and change stuff, make sure her ongoing income is adequate.
My pension provides a survivor annuity for Mom. I���ve included the number to call to get payments started.
Notify Social Security immediately. That way, you won���t end up owing money, plus you can get Mom���s survivor benefits started.
Details of my two life insurance policies, as well as contact information for the insurance companies.
Location of the safe deposit box, plus where to find the key.
Where to find my will and trust.
Details of a loan to a family member. This sum should be deducted from his share of the estate.
I promised the old grandfather clock to a family member. Make sure that happens���and no fighting about it.
A list of subscriptions and memberships to cancel.
I want to be cremated. Yes, these truly are final instructions.

This is just a sampling. My actual instructions are more detailed. Remember, the idea is to help your family deal with all this stuff. Got a pen and paper? Start writing.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Over Coffee,��Get the Point,��Poor Judgment��and��How to Blow It.��Follow Dick on Twitter��@QuinnsComments.

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Wrong Approach

I WORKED for more than 30 years in manufacturing, poring over data and paying attention to every detail that would impact production. As a project manager, I was responsible for making sure hardware was delivered on time, with no cost overruns or quality issues.

If we weren���t meeting deadlines or spending too much money, I was required to report these problems to upper management. They would ask me three questions: ���What are you going to do about it? When will it get fixed? Oh, by the way, you aren���t going to make us late in delivering the hardware to our customer. You understand that?���

Working in that type of environment, you quickly learn to be proactive. You need to stay on top of things and try to prevent matters from going wrong. When they did, you���d better have a plan to fix it.

I thought, if I can manage millions of dollars of hardware going through the factory, I can surely manage my investment portfolio���so I used the same approach. When the stock market would turn down and my portfolio started to lose gobs of money, I would ask myself, ���What I’m going to do about it? How am I going to fix it?���

My on-the-job training would then kick in and I would pore over financial data, trying to find the right investments to get my portfolio back on track. Over the years, I was in and out of more than 40 different mutual funds or exchange-traded funds (ETFs), 12 different fund families and countless individual stocks. I was a walking encyclopedia when it came to mutual funds, ETFs and stocks.

I created elaborate excel spreadsheets, replete with formulas, to give me detailed information about my investment portfolio. I updated these spreadsheets every day. If my portfolio wasn���t performing as I thought it should, I would make investment changes.

If I couldn���t find the right fix, I would just exit the market entirely. There would be months when I would be completely out of the market. I would then turn my attention to current events, looking for anything that would be an indicator to get back in.

When I look back, what did I learn that could be helpful to everyday investors?

You really only need two funds for the stock portion of your portfolio: a total U.S. stock market index fund and a total international stock market index fund. This gives you broad diversification with low expenses. More important, it takes away one of the biggest risks of investing: underperforming the stock market.
You should never try to time the stock market, by jumping in and out of stocks. Almost all of the stock market���s gain is concentrated in relatively few trading days. Missing out on those days can have a terrible impact on your portfolio’s performance.
The best investment vehicle is a mutual fund. Unless there���s a big difference in annual expenses, choose a mutual fund over an ETF. An ETF trades like a stock, so you can buy and sell throughout the trading day. That���s when you get into trouble. You need to slow down the investment process, so you don���t make an emotional knee-jerk decision. That���s why I prefer mutual funds. The price of a mutual fund is set at the close of each trading day. It gives you more time to think about what you���re about to do.
You can overcome most investment mistakes. Look at me: I made many mistakes and still met my main financial goal of retiring early.
The two most important things you can do: Start investing early and be a good saver. That���s what rescued me from all my investment mistakes.

Today, I���m retired. I no longer have to answer questions about manufacturing problems. I also no longer pore over truckloads of financial data. Instead, I turned my portfolio over to a financial advisor. I’m out of the investing business. My job now is to spend the money.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Before You Leave,��Lighten the Load��and Better to Be Rich? ��Follow Dennis on Twitter��@DMFrie.

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Getting Played

���IS CBS PIPING fake birds into its Masters coverage?��� That was the headline on a recent��Slate��article, which speculated that the television network might be adding ���enhanced audio��� of fake bird chirping to its coverage of the golf tournament.

This is not a scandal for the ages. But it serves as a timely reminder that we have fantasized notions of life that marketers and the media don���t hesitate to exploit.

Make no mistake: The PGA, with the help of CBS, is selling golf. They���re playing to our fantasy of a perfect day enjoying both golf and nature. Such multi-sensory appeals aren’t limited to broadcasters. Many sellers of big-ticket items know we come to the potential deal with an idealized image and, by playing to that, they can get us to lower our guard.

A good example is home buying. Many people want spacious homes, so camera tricks are used in real estate listings to play to that ideal and get us in the door. Once inside, realtors then go to work on our other fantasies, filling a house with the smell of fresh-baked cookies that further enhance the home���s appeal, even for people who know they will never cook.

No one is immune to these Trojan horses. One of the savviest lawyers I know only went to look at potential homes on bright, sunny days���which is what most of us do. She bought her ���dream house,��� but then discovered the gentle slope of the meticulously manicured yard caused a river to breach her front door with every hard rain.

Similarly, smart home buyers don���t just check out a potential residence on fun and free weekends. Instead, they go at least once early on a weekday to test the traffic for their morning commute.

You can���t blame sellers for playing to our fantasies. It���s up to us to make sure those idyllic images and their powers of persuasion don���t block out the realities of a major purchase or life change. Since my wife and I retired and moved to Spain, we often get inquiries about how great it must be, lounging about in an exotic land, eating paella and drinking wine under a Mediterranean sun.

Yes, we get our share of that. But there are, of course, downsides, including being far from family and dealing with a bureaucratic system seemingly unchanged since it financed Columbus���s voyage into the unknown. We also suffer the frustration of not speaking fluent Spanish, which leads to miscommunication.

Unfortunately, among the foreigners here, we���ve seen people who chase some fantasy life���and then spend extra money to try to make it the way they imagined, like building an American-style home in a place not made for it. Result: They sometimes give up on their Spanish dream, after much wasted money and time.

Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. His previous articles for HumbleDollar include��The S Word,��Applying Pressure��and��Five Mistakes. Jim���s three-book series on teaching behavioral economics and media literacy,���� Media, Marketing, and Me , ��is ��being published in 2019.��Jim lives in Granada, Spain, with his wife and fellow HumbleDollar contributor, Jiab. Together, they write a blog on retirement, finance and living abroad at�� YourThirdLife.com.

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More to Come

SINCE ENTERING the workforce in late 2010, I���ve been giving advice to others on how to put their money to good use. There are few things I enjoy more than having a conversation with a couple about such a complex subject. Along the way, I���ve pushed myself to learn more about specific financial planning strategies, as well as about human behavior and psychology.

These readings have not only taught me how I can better help my clients, but also how I can better manage my own finances. Just because I can put together a detailed financial plan doesn���t mean I���m not subject to the same behavioral mistakes.

Indeed, I���ve learned a lot about money and human tendencies over the past decade, both from my clients and from my own journey. Here are five key takeaways from the start of my career:

Life is going to change quickly, regardless of how good your plan is. An article by FiveThirtyEight.com says Americans will move an average 11.4 times in their lifetime. I���m 31 and I’ve already lived in 11 different homes or apartments. That number is soon to increase to 12. This has taught me to get rid of old belongings, so I don���t have to move them. The frequent moves have also been a reminder that mortgage or rent take up a large portion of my budget���and I need to remain flexible in how I spend my other money.
A large cash reserve has wonderful benefits. Yes, there���s an opportunity cost to not investing your excess cash. But there is also a major advantage to having cash on hand. Thanks to my savings, I was able to start my own business. That wouldn���t have been possible if I didn���t have the liquidity to pay my bills, while I went without a salary.
Starting to invest early is easier said than done. After reading personal finance books in college, I knew I needed to start investing as soon as possible. Compound interest is a powerful thing and every year counts. I began by automatically adding $50 a month to my Roth IRA using my earnings from summer jobs. When I entered the workforce fulltime, I steadily increased my contributions. I can already see my efforts are paying off. There were plenty of ways I could���ve spent the money, instead of investing, but I���m glad I took the path I did.
My natural frugality has set a foundation for a healthy financial future. But spending money makes me happy, too. I���ve come to realize that my hobbies are expensive: golf and travel. To balance out the cost, I cut back on areas that I don���t care so much about: new cars and a new wardrobe. We never know what the future will bring, which is why I spend money on things I love today, while keeping an eye on securing the future.
Automating my investments has been a boon to my net worth. I don���t believe the markets can be beaten over the long run. What I do believe in: getting out of my own way. By setting up a diversified portfolio and automating my contributions, I can invest with less interference from my potentially damaging human behavior.

I never imagined I���d be where I am today. More change is on the horizon: In May, I���ll be getting married. I can���t begin to predict what the future may hold���but I���m making sure I���m prepared.

Ross Menke is a certified financial planner and the founder of Lyndale Financial , a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross���s previous blogs include Pass It On,��A��Great Gift��and�� Bad Timing . Follow Ross on Twitter @RossVMenke .

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